Update on Payroll Tax Deferral
- Effective Sept 1, 2020, President Trump’s executive order took effect allowing for the deferral of the employees’ portion of the payroll tax from Sept. 1 through the end of the year.
- I am concerned because the IRS’s guidance from Friday night is not clear and places much liability on the employer to collect the deferred funds next year.
- Deferred taxes ultimately must be paid by April 30, 2021, according to the IRS.
- There is discussion of tax forgiveness, but no legislation or guarantee yet.
- Employers, seek guidance from your CPA and HR/Payroll professionals. Be very careful if you participate in deferring payroll taxes for your employees.
- Employees, be very careful deferring your payroll taxes now through the end of the year. What you do not pay now, according to the current executive order, you will have to pay back by April 30 next year. You will be trading a 6.2% increase in your take home pay now, for a 6.2% reduction next year. If you get used to the slightly higher income this fall, when the taxes are restarted and you payback this year’s deferred taxes, your take home pay will be 12.4% lower. Ouch!